The Federal Government released its tax discussion White Paper this week, and one South Australian lender says it’s a good opportunity to discuss how the tax system is impacting on housing supply and demand.
John Oliver is the chief executive at HomeStart Finance in South Australia, and speaking to Brokernews.com he said while there is a strong case arguing to abolish negative gearing, it needs crucial reform instead of being thrown out altogether.
“The benefits of negative gearing, in particular, makes property a very appealing option for investors,” he said.
“It would be difficult to argue that it hasn’t had some impact on driving up property prices and making it harder for first homebuyers to break into the market.”
“Research has shown that start-up costs are one of the biggest barriers to home ownership. It is very difficult for a first homebuyer to compete in a market against investors who have significant backing in the form of assets and equity.”
But Mr Oliver said if negative gearing were to be abolished it would have other implications for the property market.
“As with any decisions on housing, they need to be made with balance,” he said.
“There is a risk that modifying capital gains tax or negative gearing benefits would impact on the supply of rental properties in the market.”
“This may push up rents and make housing even more unaffordable for many renters.”
Mr Oliver said the answer is to intelligently reform negative gearing tax law rather than to scrap it.
“The solution may lie somewhere in between, where negative gearing isn’t scrapped entirely but is modified in some way to make buying a home as an investment less appealing,” he said.
“This may achieve a middle ground where there is sufficient investor activity in the housing market balanced with a clear pathway into home ownership for first homebuyers.”